Tesla’s War With the States Shifts Into Overdrive

Emile Wamsteker—Bloomberg/Getty ImagesA Model S is displayed at the Tesla store in the Short Hills Mall in Short Hills, N.J., on March 12, 2014

The electric car maker run by PayPal billionaire Elon Musk is fighting powerful auto interests in states across the U.S. for the right to sell its cars directly to consumers, upending the traditional dealership model

Tesla’s campaign to sell its electric cars directly to consumers shifted into high gear this week as state lawmakers debated Tesla-related bills while powerful auto lobbyists braced for a fight. In New York, a measure designed to ban Tesla from opening new stores passed a key hurdle, while in Arizona, lawmakers pushed a bill to make it easier for Tesla to sell its cars without establishing a dealer network.

The escalating conflict underscores Tesla’s role as a disruptive force in the U.S. auto industry, not only because the company’s cars don’t use gasoline engines, but also because Tesla is trying to upend the dealership-franchise model that has underpinned the automobile industry for decades. That model — and laws protecting it — emerged in the 1930s as a way for automakers to build a national sales and service force and help foster local economic growth.

Tesla sells cars directly to customers through its own retail locations — much like Apple does with its high-tech products — whereas other car companies rely on independently owned dealerships for sales and service. Auto-industry lobbyists say this model protects the public by ensuring consumer choice. They also warn that if Tesla is allowed to skirt the franchise model, consumers could be left in the lurch without a local service location if the electric-car maker goes bankrupt.

Tesla is currently barred or restricted from selling its cars directly to consumers in several states, including Texas, Arizona and, as of last week, New Jersey. In those states, the company operates “galleries” where consumers can inspect Tesla cars, but employees are prevented from discussing pricing or offering test-drives. After inspecting a Tesla, consumers in those states can purchase a vehicle online.

New York state assemblyman David Buchwald will hold a press conference on Friday joined by Tesla officials and environmental advocates to oppose the New York bill, which Tesla says would end the direct sale of its cars in New York. The bill, which passed a key New York state Assembly committee on Wednesday, and is backed by several dealership associations, would stifle innovation and limit consumer choice, according to Buchwald.

Meanwhile, in Arizona, lawmakers are set to consider a bill that would allow Tesla to sell cars in the state without establishing a dealer network, reversing a ban that dates back to 2000. “This is a great opportunity for us to send a message that we welcome business and we welcome Tesla here to Arizona,” state representative Warren Petersen, the bill’s sponsor, said in comments cited by the Associated Press. “We shouldn’t deny our consumers from being able to purchase a product if they want.”

The Arizona bill highlights an awkward situation facing lawmakers there. Arizona is one of four states that Tesla is considering for its planned 10 million-sq-ft (900,000 sq m) lithium-ion-battery factory, which would supply the company’s California electric-car-assembly plant. Tesla plans to invest $2 billion in the new battery facility, dubbed the Gigafactory, and says it could employ as many as 6,500 workers at the plant. Earlier this week, Arizona’s entire U.S. congressional delegation sent Tesla a letter touting the state as an “ideal choice for this revolutionary factory.”

But even as Arizona officials woo Tesla over the Gigafactory, the company is prohibited from selling its cars directly to consumers in the state. (Texas, another candidate for the Gigafactory, also bars Tesla from selling its cars directly to consumers.) According to Arizona state senator Bob Worsley, the bill allowing Tesla to sell directly to consumers is “not a quid pro quo,” he told the AP. “I want the message from our state to be that we welcome the opportunity to work with large successful companies with this size market cap.”

Tesla is battling powerful state auto-dealership interests across the country. In Ohio, the state Automobile Dealers Association waged an unsuccessful legal fight to shut down Tesla’s two existing locations in Cincinnati and Columbus. Now the group is urging state lawmakers to pass a bill that would prevent the company from expanding to new retail locations by blocking auto manufacturers from obtaining dealer licenses.

Back in New York, the anti-Tesla bill is headed for a full vote just days after the New Jersey Motor Vehicle Commission, which is composed of political appointees selected by Governor Chris Christie, blocked Tesla’s ability to sell electric cars through its own retailers in that state. In response, Tesla CEO Elon Musk charged that auto-dealer lobbyists “cut a backroom deal” with Christie “to circumvent the legislative process.” Jim Appleton, head of the N.J. Coalition of Automotive Retailers, shot back by claiming that Musk was having a “hissy fit.”

Musk mocked the “consumer protection” rationale that was presented. “If you believe this, Governor Christie has a bridge closure he wants to sell you!” Musk wrote in a company blog post. “Unless they are referring to the mafia version of ‘protection,’ this is obviously untrue.'”

As a result of the new rule, New Jersey residents will soon have to go out-of-state or use the Internet if they want to purchase a Tesla vehicle. Musk urged would-be Tesla buyers to visit the company’s New York City store or its King of Prussia, Pa., location near Philadelphia.

For his part, Christie blamed the New Jersey state legislature for effectively banning Tesla from selling cars to consumers directly in the state. “I’m not pushing Tesla out; the state Legislature did,” Christie said at a town-hall meeting, according to the Newark Star-Ledger. “I have no problem with Tesla selling directly to customers, except that it’s against the law in New Jersey.”